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Hotels 'Push' On Vat Amid 39% Revenue Growth

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The 39 per cent increase in 2018 first quarter room revenues illustrates what was at stake when the hotel industry yesterday met the Government over its planned VAT hike.

The Central Bank of The Bahamas' monthly report for April, released last night, revealed that pricing power among Nassau/Paradise Island hotels had increased year-over-year despite the launch of much of Baha Mar's 2,300 room inventory.

Average daily room rates (ADRs) increased by 11 per cent to $273.59, while rooms nights sold rose by 26 per cent during the peak winter period that was boosted by an earlier Easter this year. The only negative indicator was occupancy rates, which declined by 7.1 per cent for the three months to end-March 2018.

The report's production coincided with yesterday's meeting between the Bahamas Hotel and Tourism Association (BHTA) and K P Turnquest, Deputy Prime Minister, and his Ministry of Finance officials to discuss the likely impact of the 60 per cent VAT rate increase on the country's largest industry and employer.

Carlton Russell, the BHTA's president, and Robert Sands, Baha Mar's senior vice-president of external affairs, both declined to comment beyond confirming that the meeting took place. It was the first in a series of industry-specific meetings that the Bahamas Chamber of Commerce and Employers Confederation (BCCEC) has organised with the Government to discuss the implications of its 2018-2019 fiscal plans for the private sector and wider Bahamian economy.

An insight into the 12 per cent VAT rate's likely impact on the tourism industry can be gleaned from the Ernst & Young (EY) analysis that was produced for the sector in 2014 during the run-up to the Christie administration's ultimate implementation of a 7.5 per cent, broad-based levy.

The EY study, which was based on a 10 per cent VAT for hotels and 15 per cent on other tourism sales, rates that are not too dissimilar to the planned 12 per cent. It found that the then-proposed rates would increase the prices paid by tourists in an already high-cost Bahamas by 9 per cent, and raise the net tax burden on the sector by around $320 million based on 2015 levels.

"A 9 per cent increase in tourism prices would reduce tourism consumption by 11 per cent," the EY study found. "As tourists respond to increased prices resulting from the VAT, they would reduce the number of visits and consume fewer goods and services in the Bahamas. The analysis estimates that this response would reduce tourism sales by $380 million in 2015 levels.

"A $380 million reduction in tourism sales in 2015 would result in the elimination of 9,000 tourism and related jobs across the Bahamian economy. It would result in a loss of nearly 4,700 direct tourism sector jobs, relative to the baseline in 2015 (11 per cent reduction).

"The total domestic job loss would increase to 9,000 jobs when considering jobs supported by the tourism industry's supply chain and employee spending (the 'multiplier' effect). By 2017, the economy-wide job loss would increase to nearly 13,200 jobs, of which 6,800 would be from within the tourism industry."

One source, speaking on condition of anonymity, said the hotel/tourism industry's chief concerns align with the rest of the private sector in terms of the magnitude of the VAT rate increase and the narrow 30-day window in which to implement - and comply with - the changed rate and exemptions.

"The push was to see if the Government would contemplate a lower percentage of VAT, and if there would be more time to implement and comply," the source said, pointing out that the sector has multiple existing contracts where a 7.5 per cent rate is locked in.

The fear is that the VAT hike will disrupt, and cut-off the 2018 first quarter momentum generated by a combination of Baha Mar's opening and lack of 'cannibalisation' with Atlantis. Stopover visitors to the destination grew by 18 per cent year-over-year, with 'double digit' expansion continuing into the second quarter, as the Bahamas attracted an additional 63,000 air arrivals.

"Hotel performance indicators - based on a survey of large properties within New Providence - improved over the first quarter, as total room revenue grew by 39 per cent," the Central Bank said. "This outturn reflected a 26 per cent increase in room nights sold, and a 10.9 per cent gain in the Average Daily Room Rate (ADR) to $273.59.

"Indications are that the positive tourism industry trends were sustained during the month of April, as partial data from the Nassau Airport Development Company (NAD) showed a 7.9 per cent expansion in total departures - excluding domestic passengers - outpacing the 4.4 per cent gain in the prior year.

"In terms of the components, US passengers grew by 6.8 per cent, surpassing 2017's 2.3 per cent advance, while non-US international departures rose further by 14.3 per cent compared to 17.9 per cent in the prior year."

The Central Bank attributed the improved showing to Baha Mar bringing extra high-end room capacity online, along with "intensified marketing campaigns" and severe weather that impacted the Bahamas' major US source markets.

"Data from the Ministry of Tourism showed a 2.8 per cent improvement in total arrivals, vis-à-vis a 2.2 per cent decline in the prior period," the Central Bank added.

"This outturn reflected an 18 per cent expansion in the high value-added air segment, a reversal from the previous year's 9.4 per cent contraction. Meanwhile, sea arrivals decreased by 1 per cent, following a 0.2 per cent softening a year ago.

"An analysis by first port of entry, revealed that air visitors to New Providence surged by 19.5 per cent. However, a 9.1 per cent fall-off in the dominant sea component led to a 1.8 per cent decline in total tourist arrivals, vis-à-vis 2017's 7.3 per cent gain."

Comments

John 2 years, 9 months ago

A 9 percent increase in price will cause an 11 percent decrease in tourism. So if a 12 percent increase in VAT will cause a corresponding 15 percent decrease in consumption then government may not realize their fiscal goals. And even more concerning if the corresponding decrease in sales causes a number of businesses to close the Nassau especially will look like a ghost town come January 2019. And if The is leads to increase in unemployment then the country may be in for an economic toxic shock. Hopefully the 19 percent Tourism growth can offset this with room for a slight growth.

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ThisIsOurs 2 years, 9 months ago

"A 9 percent increase in price will cause an 11 percent decrease in tourism. So if a 12 percent increase in VAT will cause a corresponding 15 percent decrease in consumption"

You can't make an assumption like that, with a 12% increase the percentage falloff could double, you don't know, pricing is a very sensitive area, there is a point at which persons say it's just not worth it, that point could be 10.5% who knows? and you experience a greater falloff in sales than the percentage increase. You can't know without analysis and feedback from business and consumers. They really botched this. And Minnis silent again. I wouldn't be surprised if he lets a big hullabaloo develop then stands up like he's the savior and says he can't support this tax burden on the Bahamian people. It's the same thing he did with Oban, rather than dealing with the issue before it blew up he let his ministers take a bunch of lickings, then presented himself like the only reasonable man in the bunch

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John 2 years, 9 months ago

I have never seen a price elasticity curve where a 12 percent increase causes the decline in consumption to double. And while my statement was made on assumption (SO IF) it was not total speculation without application of economics. Remember two things: 1. Persons still have to live and to do so they will have to consume basic essentials. So while they may switch to cheaper brands or products, like sardines for tuna or leg quarters from breast or wings, or catching the bus rather than driving to work, they will not stop consuming completely. 2: Since Bahamians have been going through both recession and hardship for the past 10 years they have already eliminated most non esseoand luxury spending.

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John 2 years, 9 months ago

BTW the Wall Street Journal is reporting that for the first time in the US since 2000, more jobs are available than the number of persons looking for jobs. The spillover effect to the Bahamian economy by December?

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Well_mudda_take_sic 2 years, 9 months ago

And now you're pro-Trump. Oh well, wait 'til you see how the U.S.'s enormously increased demand for skilled labour exacerbates the brain drain from our small country, eventually leaving us with nothing but the likes of yourself!

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John 2 years, 9 months ago

But one should also be aware that the introduction of vat was shielded by a 40% increase in the minimum wage. So the lowest wage earners, who are also the largest consumers, did not get the full brunt of the introduction of vat. This time it will affect them full and will change their buying Poland spending habits.

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TheMadHatter 2 years, 9 months ago

It is obvious to me that the hotels want the currency to be devalued...since they will then have an advantage over others by absorbing foreign currency directly.

Very devious, if true.

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